You’ve established yourself as a financial professional, and now, you’re looking to explore the careers available to you in the financial services industry. You’ve heard something about working with broker-dealers, but you’re not quite sure what one is.
This article will explain what a broker-dealer is and whether you should work with one.
Table of Contents
What Is a Broker-Dealer?
A broker-dealer is a person or a firm that buys and sells securities (stocks, bonds, or mutual funds) for a client or its account. A broker, also known as an agent, facilitates transactions on behalf of a client. A dealer, also known as a principal, trades securities for an account.
Financial professionals or firms may be one or the other, or both.
There are two types of broker-dealers:
- Wirehouse: typically a large firm that sells its investment products to clients
- Independent Broker-Dealer: a smaller firm that sells others’ products
When you think of wirehouse broker-dealers, you think of Fidelity Investments, Charles Schwab, Morgan Stanley, Merrill Lynch, and other subsidiaries of central banks.
But other firms, such as Concorde Financial Services, an SEC-Registered Investment Advisor and full-service broker-dealer, partner with financial professionals.
Your Role as a Broker
In the broker portion of your role as a broker-dealer, you execute transactions for your clients. For example, when an investor wants to buy or sell a stock, bond, or mutual fund, the investor places the order with you, and then you make sure it happens. You’re the investor’s connection to the securities exchanges.
You must be registered with the exchanges to make trades, so individual investors need you, the broker, to carry out the transactions. In exchange, you can earn a commission or fee.
Your Role as a Dealer
In the dealer part of your role as a broker-dealer, you are directly active in the market, buying and selling investments for your account. Your goal is to profit from selling securities for more than you paid for them.
The dealer’s role is important because the buying and selling of securities help ensure a market for investments with a continuous flow of supply and demand.
What Do Broker-Dealers Do?
According to the Financial Industry Regulatory Authority, a nonprofit organization authorized by Congress to oversee broker-dealers, there were 3,378 broker-dealers at the end of 2022, the last year for which statistics were available.
Broker-dealers have several responsibilities, including:
- Providing investment advice
- Supplying market liquidity
- Making trades
- Researching investments
- Raising capital for businesses
Broker-dealers can be either full service or discount. Full-service firms provide financial guidance and handle trades for clients, and discount firms might provide someone with research or education, but they only trade for clients. Clients are left to make the investment decisions on their own.
However, discount broker-dealers typically cost less, and full-service firms typically can charge higher commissions or fees.
Do I Need to Work With a Broker-Dealer?
Whether you want to go it alone or work with a full-service broker-dealer depends on your personal circumstances and professional preferences. As a financial professional, if you’re looking to set up as a financial advisor, your choices typically come in two flavors: independence or support.
For independence, you can choose to become a broker-dealer along with being a financial advisor. For support, you can partner with a broker-dealer or work for a broker-dealer with your financial advisory practice.
What Makes a Good Broker-Dealer?
The right broker-dealer for your business depends entirely on your goals. For example, Concorde Investment Services provides representatives with independence and support, as well as access to resources, technology, and tools that can help strengthen client relationships and work more efficiently to propel your business forward on your terms. They were even recently named a 2023 Best Places to Work in Southeast Michigan by Crain’s Detroit Business after a two-part survey process to make it into the top 100 companies.
The right broker-dealer will encourage collaboration, host conferences to build community, recognize top performers, and provide networking opportunities. No matter who you choose, it’s all about growing your business. Good luck out there!
